SMF Proposes New Approach to UK Broadband Social Tariffs

A new report from the Social Market Foundation (SMF), which is a British cross-party think-tank, has recommended that companies providing essentials (broadband, energy, water and transport) are made to offer Social Tariffs to vulnerable customers “in a consistent manner” in order to ensure all eligible users can benefit.

At the time of writing, the report – ‘Bare necessities‘ (due out tomorrow), commissioned by Citizens Advice – hadn’t yet been published, and so we do not yet have enough detail to properly judge it. But the SMF is seeking to help “eliminate [the] postcode lottery in social tariffs” and are thus presenting a new roadmap that also addresses other major issues, such as low take-up and poor targeting.

The report calls for support to be extended across the following essentials markets: household utilities (water and sewerage, gas and electricity), broadband, public transport (i.e. bus and rail travel), and car insurance (note: there’s no mention of mobile operators). At present, responsibility for the design and implementation of social tariffs is largely left to companies, which the SMF says produces “wide variations in eligibility criteria and discounts“.

In fairness, we see this on related broadband and mobile packages too, but that’s largely reflective of the fact that there are often different underlying networks, capabilities, coverage and delivery costs involved. As such, what one broadband ISP can offer may not be possible on another, but most packages do still sit in the same £15-£20 per month range.

To eliminate the postcode lottery, the SMF has called for the Government to set out mandatory, enforceable requirements that specify minimum standards for social tariff provision as part of a “series of short-term measures that begin to make social tariffs fairer for all“. For example, it states that companies should be encouraged to better promote existing social tariff schemes and to eliminate exit fees for switching to a social tariff scheme, which seems fair enough (Ofcom are already pushing for that).

However, in the long-term, the report suggests that the “ideal design of social tariffs would cap bills as a proportion of income“. As we haven’t seen the final report, then we’re not quite sure how that would work for broadband providers. But this seems to suggest divorcing the product from its delivery costs (who pays for that?) and operators might need to understand individual incomes, which is going to be a logistical and billing nightmare (new data sharing systems will be required).

Beyond addressing postcode lotteries in social tariffs, the SMF has outlined what it sees as the “gold standard” for social tariffs’ infrastructure, which they say should be the long-term ambition for policymakers:

Gold Standard for Social Tariffs

• Eligibility should be based on household income, specifically a bills-to-income ratio, looking the proportion one spends on essentials relative to their household income, and after accounting for their housing costs. Our polling of 4,000 UK adults found that most agreed with the idea that income should be the criteria for eligibility rather than the benefits system.
• The scheme is applied automatically, and across all the relevant goods and services – i.e. an eligible household doesn’t need to sign up, but they do have the option to opt-out.
• The social tariffs should be funded by the public purse – this will ensure that the burden on households is progressive (larger burden placed on those who are more able to pay).

Despite the complexities, we suspect that most broadband ISPs would more than welcome a move for social tariffs, which are currently industry funded (i.e. the government provides no subsidy), to be funded by the public purse. Some providers, such as BT – an operator that attracts the lion’s share of social tariff users – have even warned that such tariffs may eventually become “unsustainable” without more support (here).

However, we suspect a match-funded style approach or a VAT discount may be more likely as, now that the industry schemes already exist, the government probably won’t want to take on the full burden if they don’t have to.

Sam Robinson, Senior Researcher at Social Market Foundation, said:

“Markets are the best vehicle for delivering most goods and services efficiently and affordably, but sometimes they fail the most vulnerable in society – with dire consequences.

As the cost-of-living crisis becomes our new normal, we must confront the fact that increasing numbers of families are locked out of having life’s essentials. Old systems and criteria for support and discounts can no longer be relied upon – because those in need are falling through its cracks.

In the short term, action to increase the reach of social tariffs is urgent. But policymakers keen to address the unceasing financial pressure on families in the longer term as well should be looking to overhaul the current social tariffs framework.”

We should point out that, back in April 2023 (here), Ofcom reported that the take-up of cheaper social broadband ISP and mobile tariffs for those on state benefits had increased to 220,000 households (up from 136,000 six months ago). But that still represents just 5.1% of households on Universal Credit (4.3 million), although it’s clear that take-up is at least going in the right direction and quite rapidly so.

The report also claims that the UK Labour Party is expected to put plans for an “industry-wide social tariff” for low income families on broadband before its party conference next week, which is something they proposed a year ago (here). This would be mandatory and wholesale suppliers, such as Openreach and CityFibre, would also be expected to play their part. But a mandatory scheme could put pressure on smaller players, some of which may struggle.

Finally, a quick reminder – we know social tariffs can be divisive for some, but that is not an excuse to abuse the comment system in order to post offensive remarks toward those who take state benefits. Such posts are against our rules and will be removed.